Karnataka receives lowest solar energy tariff bid till date

Karnataka seems to have set a new benchmark for the country in solar energy pricing. The state received the lowest bid so far in the solar segment ever in India. Sun Pharma made the successful bidding by quoting an all time low of Rs 5.51 per unit of solar-based electricity, which is the rate at which it will supply to the state power utility. The highest bidders to win the contract were Welspun Solar Kannada Private Limited and Heidelberg Solar Private Limited who bid at Rs 8.05 per unit of electricity generated.

The lowest bid quoted before this was Rs 7 per kWh in Odisha after it announced its state solar policy in 2011. The highest bid under the state's solar programme was placed at Rs 8.98/kWh by Azure Power, the New Delhi-based solar energy developer; the lowest – with a significant margin, making it the lowest bid placed in the country until the Karnataka bidding process— was quoted by Kolkata’s Alex Green Energy at Rs 7/kWh.

The Karnataka Electricity Regulatory Commission had approved the reverse bidding rate at Rs 14.5 per unit. But the average bid price received was Rs 7.06 per kWh, which less than 50 per cent of the approved tariff. The highest bid that was made during the bidding was Rs 10 per unit. (A reverse bidding system for providing power works this way: the developer who quotes the lowest per kWh price, wins the bid and gets to set up the specified amount of power producing capacity and gets paid the bid price from the buyer, in this case the state power utility.)

The bidding was initiated to allocate for a capacity of 130 MW solar power. Each bidder was allowed to bid for three projects of a maximum of 10 MW each and a minimum of 3 MW. Out of the 130 MW that was allocated, projects worth of 135 MW have been sanctioned. These projects are being set up under the Karnataka Solar Policy 2011 – 2016. Under this policy, the state targeted 130 MW solar power capacities for the year 2013 – 14. One of the objectives of the policy is to help state utilites in providing solar power in order to fulfill their renewable purchase obligations (RPO). RPO is the obligation of power utilities and captive power producers to buy a certain percentage of renewable energy.

Now that the bids have been finalized, the companies have to set up their projects within one year after signing the Power Purchase Agreement with the distribution utility. There is heavy penalty in case of delays in commissioning the projects. A delay up to one month can result in a fine of up to 20 per cent of the performance security that is submitted to the distribution utility in the form of bank guarantees. Performance security is a aggregation of performance guarantee and bonds and bid security which comes to Rs 50 lakh per MW.

For a delay between one to two months after deadline, another 40 per cent of the performance security will be the penalty. Again, for delays up to two to three months of the deadline, the rest of the performance security would be forfeited by the bidder.

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